Taking the Fifth

by Greg Walcher on September 12, 2013

Last month, the U.S. Supreme Court struck another blow for private property rights and further strengthened the Fifth Amendment prohibition against taking private property for public purposes without just compensation. Unfortunately, the Court also added to the inconsistent body of law surrounding the takings issue.

The latest case, Koontz v. St. Johns River Water Management, centered on whether a Florida wetlands district could set excessive conditions on the approval of a land-use permit. A property owner named Coy Koontz sought to develop 3.7-acres of his wetlands property, and offered to compensate for wetland damage by deeding a conservation easement on 11 acres to the district, as the local law requires. But the district instead wanted him either to reduce his development to one acre and put an easement on ALL the rest of his property, or pay thousands to improve district land miles away.

Mr. Koontz’s refused, and his permit was denied, so the Florida State Supreme Court ruled that there had been no “taking,” since the permit was never issued. The U.S. Supreme Court overturned that ruling. The court’s 5-4 majority ruled that “extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.”

It seems logical to most observers that taking an owner’s right to use their land often amounts to almost the same thing as taking its deed. But the high court’s history in such cases is much less clear.

David Lucas bought two lots on a barrier island near Charleston, but the South Carolina Coastal Commission later change the zoning laws and prohibited the two houses he had planned to build. His 1992 lawsuit went all the way to the Supreme Court and re-affirmed the 5th Amendment prohibition against such government “takings.”

A similar outcome 5 years earlier in the case of Nollan v. California Coastal Commission produced almost the same court rebuke against government over-reach.

Unfortunately, “regulatory takings” remain commonplace as Jim Wickstra, a Michigan developer in a similar situation, discovered. He bought a 3-acre parcel on Lake Michigan, intending to build a valuable beach home for resale. A few months later, the Legislature approved the Michigan Sand Dune Protection Act, designed to stop development along the lakefront.

Mr. Wickstra applied for the required permit, but was denied by the state Department of Natural Resources, even though he offered several alternate plans to protect the dune and to build an environmentally sensitive home. The State tax agency ruled that the property was worth $200,000 with a building permit and only $500 without it. Yet he spent more than a decade fighting to get compensation for the loss of his property value. The Michigan Court of Claims Judge rejected Mr. Wickstra’s property rights lawsuit, ruling that $195,500 was an insufficient decline in value to justify compensation. Mr. Wickstra says the ordeal not only cost him the total value of the land, but also $170,000 in legal fees, all to no avail.

Similarly, the U.S. Supreme Court in 2010 upheld a Florida law that allows the state to create public beaches on formerly private property, under the guise of beach restoration after a storm. Also, state-level “regulatory takings” have often been upheld, such as several noted Oregon cases involving the use of endangered species habitat designations to prohibit logging on private property.

The legal system failed Mr. Wickstra, the Florida beach owners, and the Oregon timber owners where it had aided Mr. Lucas, Mr. Nollan, and now Mr. Koontz. This most recent case is especially noteworthy, because the ruling extends the earlier “takings clause” precedents to government denial of permits and government demands for offsite mitigation, where the earlier cases all related to a direct impact on the property in question.

We frequently advise clients whose property faces similar potential restrictions, showing better ways to avoid the legal quicksand, and obtain the needed permits without having to push the legal stone uphill. These cases can be won, obviously, but at what cost and with what level of certainty? In most cases, we find it more productive for clients to head off such a showdown before it occurs.